scorpioncapital

I found this article quite nice and straightforward: http://www.kapitalust.com/the-intrinsic-value-of-berkshire-hathaway/ He uses a present value calculator and asks: What price should I buy to get 10% return per year? The article was written when BV was $97 per B share. It assumes a "sell-ratio" of 1.5x BV. The conclusion is you should buy at up to $146/share. However, it'd be nice to see this calculation assuming a lower check-out ratio, let's say the present one. Also to assume you might want a higher return like 15%. I would imagine it's not rocket science to eyeball this. If Berkshire can grow at 15% per year BV and the ratio is a "measly" 1.2x, then certainly we are approaching these kind of numbers within say another $10/share drop. PS. So I tried to calculate assuming 1.2 P/BV exit in 10 years assuming 10% BV growth and current price of $128/ B share. Assuming 1.65 billion shares outstanding, the current return seems to be 13.9%? E.g. 246b * 1.1^10 = 638 billion * 1.2 = 765 billion or ~ $464/share. From $128 to $464 in 10 years is roughly 13.9 or so% per year. Does this seem right? It's not too bad. Buffett would be 95 years old, Munger would be in the 100s. All this assumes that capital can be reinvested at 10% when dealing with something on the order of half a trillion dollars!

This guy obviously isn't impressed for some reason...http://www.thestar.com/business/2015/08/14/why-berkshire-hathaway-is-a-stock-to-avoid-olive.html

Position sizing and not stretching for profits via either lesser quality or leverage are two really useful money management skills. These two almost wiped me out 3 times in my life. Or the proper combination of assets. I.e. leverage and unstable, volatile small-mid caps don't mix! At least I learned to time the financing to the type of asset better. Good luck on your future career, looks like you got things figured out. I'd also add that writing a plan on paper or keeping a journal are really useful and then to review it each month or quarter to see if you violated the plan or rules.

I also am inferring that if Berkshire has publicly stated they are willing to buy back stock at 1.2 P/BV and knowing their history of reluctance to do either dividends or buybacks, this number is not exactly what they consider intrinsic value, possibly they consider it a decent discount to intrinsic value. However, I sense a practicality settling over Berkshire. Being so big, their goal is to outperform S&P by a little and so buyback shares at a modest, but not screaming discount. Agree that a buyback is no floor unless you're the government nothing says it can't go lower than that.

Sounds like having a metric in mind is a good idea. Seems better to buy quality when it goes on sale cause it doesn't come around everyday!

If Berkshire is set to buy back stock at 1.2x P/BV would this be a good entry for a new investor as well? It seems we are only 10% away or roughly around $120 per B-share.

Was Bernanke referring to the old normal or the new normal? Old normal is like 5%, but from 0 to 5% there is some room to go up. Also if you splice this idea with that of Buffet who said if rates remain zero for a long time (or lower than normal I suppose is another interpretation) than stocks at current prices are still very cheap.

I think Canada is a more socialist country than the US. In essence, it is usually like a slowly deflating tire instead of a blast. We tend to be more fiscally conservative to limit growth, have higher taxes that kick in at lower levels than the States, and higher average inflation than in the US. The sum total result of all these policies is that our busts tend to be more like a slowly eroding and grinding process rather than a plunge.

I've read about PPP but it seems to me to be just the outward symptoms of underlying causes. It's like saying it costs x 'rubles' to buy the same as 'x' Canadian dollars. But the cause is far deeper. For example, is the US dollar the strongest currency because it represents - true or false - the free-est country on Earth? Least amount of government meddling? Socialism? etc...

Converting from a strong currency to a weaker currency on a schedule and dictated by your expenses and where you live is a form of natural hedging. I think this is suitable in most cases.

You could also use the Buffet test of $1 of share price gain for each $1 of IV increase but it's easy to pass this test and not end up any richer if say book value grows very little. I'd compare BV gains and stock price gains and have a minimum threshold of performance.

I slowly sell if each additional data point confirms my sentiments about management. But I don't sell all. Just enough to sleep well. A schedule is good. X amount every X days,weeks or months.

Yeah, the bottom line with taxes is real world experience in your case. This is very common. State 1 has lower income taxes and makes it up on a host of other taxes including higher cost of living. State 2 has higher income tax but lower taxes elsewhere. Then there are states like California that have high everything :)

Can NPV values every be underestimated?

I'm looking at gold mining. A company is about 30% below NAV @ 5%. Not sure if this is enough of a discount, but rates are unlikely to go above 5% for quite some time.

I've seen several NPV tables at say 5% and not sure if these calculations include a) sustaining capex of the project and b) has added the net asset value of the company at present (e.g. assets minus liabilities). c) the initial capital cost of the project. If it includes a) & c) and not b), you would have to add the NAV to the sum total of future cash flows?

They should plot a second line on top of this graph - real interest rates.

The UK is part of the Euro and uses it's own currency, so I don't think an exit is mandatory. However, whether the other countries want to keep a country "in" that does not even remotely meet any of their metrics is another story.

Lowest interest rates in history + higher leverage (5% down vs 25% down 30 years ago). Is there any wonder prices are sky high? I'm not even sure renters are getting a good deal. Does anyone else yearn for the days when money had a price (interest) and leverage led to disaster?

The situation is more like this: US Dollars: $100 Buy a stock ($100 @ 1.1) = $110 Canadian Cost. Sell stock later ($100 @ 1.3) = $130 Canadian Cost. US Dollars: $100. $20 capital gain (assume no principle appreciation) Taxed: $20 * 0.5 * (e.g. 20%) = $2. You actually have an after-tax loss even though you hold the same amount of US dollars and technically no profit.

For many years now I've used the standard method of calculating capital gains of taking the cost at purchase converted to CDN and then taking the price at disposition converted to CDN. Yet I realize that this results in phantom gains which one is taxed on. For example, if I keep the US funds and stocks in US dollars even after selling it, if the exchange rate changes alot (as it has recently from 1:1 to 1.25), but keep the funds in US dollars, does this mean that you pay a capital gains tax even if you have not converted the funds to Canadian dollars, having to pocket the tax from your reserves?

Love this line: "In our view, it is madness to risk losing what you need in pursuing what you simply desire". Of course, by this definition we are all mad such is the human condition :)

rate of book value growth is return on equity, it's the most important metric. If I have a giant pile of money and add a penny to it a year, I'm growing book value, nobody would be impressed, a massive misallocation of capital. I see this in many companies who should maybe leave the industry all together or close shop or do something more intelligent like trim the fat, give back the money pile - since it's not needed - or worse, it's needed and doesn't make a lot of money.

Here's a good generalization: all generalizations are liable to exceptions. Is 240 trades a year bad? Maybe, unless you are trying to establish a long term position and lowering your cost basis - a sort of dollar cost averaging. Not the same as changing your mind every 4 minutes. Is it wrong to put 100% in one stock? Maybe, unless that stock is so diversified vertically that it represents a mini-Universe of many businesses. Doesn't Buffett have all his money in Berkshire? Is it not reasonable that it is a slightly better proxy than the S&P500 for diversification? As an aside, the rules for cap gain vs income treatment is a matter of fact determination based on several factors listed in CRAs docs. See if you can make an argument to yourself based on this criteria. Everything can be cap gain or income, even naked option transactions. There is a document on that, option transactions on acccount of capital gains OR on account of income. I love the way CRA says 'matter of fact' when in fact it's as grey and subjective as you can get. Like in school, it all boils down to how well you justify your position in the debate. As an anarchist I don't really think the government or anyone should be the teacher passing verdict on your argument and your money, but this is the world we live in - in Canada anyway.

Based on what you wrote, forget income treatment, it's capital gain. Canada has this silly system where you have to classify this but you win either way so it matters little. However, the default position is capital gains and one should consistently stick to that. The reason I say you win either way is because if it's income you deduct against income gains or losses, if it's cap gains or losses you deduct against other year capital gain or losses. About incorporating for this, forget it too. Do you know how complicated it is to prepare balance sheets in multiple currencies and translate them to CDN and you have to do this every year. Also there is little to no tax benefit except the compounding of non-dividended income in the corporation but it's really not worth that much. The best business structure is called RRSP and TFSA, tax free trading in there and you can do whatever you want in there, even trade every 5 seconds :) also check out financialwebring.com taxing situations - all your questions are answered there and much more.